2023 (1) TMI 809 - HC - Money Laundering

PMLA Prosecution Hinges on Scheduled Offence: High Court Quashes Case

The High Court concluded that the prosecution under the Prevention of Money Laundering Act cannot continue if the scheduled offence is quashed. The ... Money Laundering - schedule offence - proceeds of crime - non-existent or non-functional or fake functional MSMEs - offences under Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, 1988 besides Sections 420, 468, 471 and 120-B IPC - HELD THAT:- The PMLA is a law linked with the scheduled offence. The same is evident from a sincere reading of Sections 5 and 8 of PMLA as it stood prior to 2009 and 2013 Amendments. In Section 5 of the PMLA (as it was originally enacted), a condition prerequisite for an order of provisional attachment of property was that the accused has been charged of having committed a scheduled offence. The said requirement was diluted to the effect that notwithstanding the above, provisional attachment could be ensured under Section 5 of PMLA when the concerned officer expressed his view in writing that the failure to immediately attach property would likely frustrate or defeat the action against money laundering. Section 8 of the PMLA prior to its 2013 Amendment), any attachment or retention of property under the PMLA would cease to exist once the person charged with a scheduled offence stood acquitted for the said offence. However, the amendment of 2013 was done away with the unamended Section 8 of PMLA. Having discussed so far, it is clear and apparent that while the continuance of the proceeding under the PMLA was intricately linked to the scheduled offence proceeding, the Legislature attempted to erase the said distinction by introducing amendments which led to incongruent interpretations resorted to by the various High Courts. With the above ratio laid down by the Supreme Court [2022 (7) TMI 1316 - SUPREME COURT], it has to be held that proceedings of money laundering are liable to be terminated with the underlined scheduled offences ending in acquittal, dismissal or being quashed. All the aforesaid decisions relief upon by the ED have been neutralized by the decision of the Apex Court in Vijay Madanlal Choudhury [2022 (7) TMI 1316 - SUPREME COURT]. In the plain language, if the foundation does not exist, how the edifice can survive. In other words, when the predicate offence fails, the foundation having been demolished, the superstructure is to fall and crumbl Application allowed. Issues Involved:1. Legality of the proceeding under Section 45 of the Prevention of Money Laundering Act, 2002 (PMLA) in Criminal Misc. Case (PMLA) No.40 of 2017.2. Impact of quashing the schedule offence on the prosecution under Section 3 of the PMLA.3. Interpretation of the PMLA as a standalone offence versus its dependency on the scheduled offence.Detailed Analysis:1. Legality of the proceeding under Section 45 of the PMLA:The petitioner challenged the legality of the proceeding under Section 45 of the PMLA, arguing that the prosecution is unsustainable in law. The petitioner contended that since the schedule offence was quashed by the High Court in CRLREV No.596 of 2018, the prosecution under Section 3 of the PMLA should also be terminated. The petitioner emphasized that no role was attributed to him in the distribution of coal to non-functional MSMEs, thus nullifying the basis for the PMLA prosecution.2. Impact of quashing the schedule offence on the prosecution under Section 3 of the PMLA:The petitioner argued that the offence of money laundering under Section 3 of the PMLA is dependent on the commission of a scheduled offence. Since the scheduled offence was quashed, the prosecution under the PMLA cannot stand. The petitioner cited the Supreme Court's decision in Vijay Madanlal Choudhury, which held that the offence under Section 3 of the PMLA is dependent on the illegal gain of property as a result of criminal activity relating to a scheduled offence. If the scheduled offence is quashed, there can be no offence of money laundering.3. Interpretation of the PMLA as a standalone offence versus its dependency on the scheduled offence:The Enforcement Directorate (ED) argued that the PMLA is a special law with a distinct procedure and that the offence under Section 3 of the PMLA is independent of the scheduled offence. The ED contended that the PMLA prosecution should continue regardless of the quashing of the scheduled offence. The ED cited several High Court decisions supporting this view, including Smt. Janata Jha, Radha Mohan Lakhotia, VGN Developers Private Limited, and Babulal Verma. These decisions held that the PMLA is a self-contained law and that the offence of money laundering can stand independently of the scheduled offence.However, the High Court referred to the Supreme Court's decision in Vijay Madanlal Choudhury, which clarified that the offence of money laundering under Section 3 of the PMLA is dependent on the commission of a scheduled offence. The Supreme Court held that if the scheduled offence is quashed, the prosecution under the PMLA cannot continue. The High Court also noted that the Explanation to Section 44 of the PMLA, introduced by the 2018 Amendment, does not alter this fundamental principle.Conclusion:Based on the Supreme Court's decision in Vijay Madanlal Choudhury and the interpretation of the PMLA, the High Court concluded that the prosecution under the PMLA cannot continue if the scheduled offence is quashed. The High Court held that the foundation of the PMLA prosecution is the commission of a scheduled offence, and if this foundation is demolished, the prosecution under the PMLA must fall. Consequently, the High Court quashed the proceeding in Criminal Misc. Case (PMLA) No.40 of 2017 pending before the learned District and Sessions Judge-cum-Special Judge (PMLA Act), Khurda at Bhubaneswar.